Nissan case notes
Taking on the challenge
- Renaults cash injection 5.4 billion us
- Renault would get access to North America and Asia
- Nissan would get access to Europe and Latin America
- Renault would get access to Nissans’ Engineering and Manufacturing expertise
- Nissan would get access to Renaults’ Marketing and Design flair
- Nissan had posted global losses in six of the previous seven years.
- Nissans 4 out of 43 models were profitable
- Daimler insiders afraid of Japanese resistance to change
- Renaults credibility - referring to the Volvo merger, fueled by cultural problems.
- Renault 44% state owned.
- An analyst thought that the DaimlerChrysler cultural problems were nothing compared to if RenaultNissan.

- Both Renault and Nissan: Nationalistic and Patriotic
- News of Renault-Nissan negotiations resulted in a drop in Renault shares.
- Nissans’ problems were evident:
• Too many plants (some running at 50% capacity)
• 25 expensive chassis (compared to volkswagens 4)
• Too many suppliers (3000, compared to 300 at ford)
• Too many dealers in Japan.
• Japanese Culture:
- Lifetime employment
- Close ties with suppliers
- Renaults STAKE:
• The power of VETO, meaning that people were afraid of making changes due to the stakes.

Building the team
- Cross-cultural challenge (mainly French and Japanese)
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- Ghosn had one condition: He would have full control, and he did not have to seek approval from
France.

- And he got to handpick 20 or so executives who would accompany him.
- Ghosns’ approach: THE TWO COMPANIES SHOULD WORK TOGETHER AS TWO DISTINCT
PARTNERS. Without worrying about creating a common culture, and combining the businesses.
Ghosn went to the factories:

- He talked to sales people and service technicians.
- He visited research facilities and plants (inputs from engineers, managers and dealers)
- He got CANDID FEEDBACK, he approached them earnestly

- Managers knew how many minutes it took to build a car, but not the costs!
- Everybody is achieving their objective, yet the company is in very bad shape.

- Nobody feels accountable.
- No sense of urgency

- Ghosn realised, it wasn't enough to change the operations
- Preserve Identity
- Increase the self-esteem of the people affected by the change

- He assured Nissans employees, that the company would REMAIN JAPANESE
- He wanted to keep the strengths of the Japanese culture.
- Adopted world-wide best practices.

Ghosn was named COO on June 25, 1999.

- For the first time, the board meeting was held in English.
In board meeting:

- Ghosn: “Gentleman, we’ve had 10 years of decline. That’s enough (…) There is a place for every single person in this company who wants to give the company a chance for recovery, no matter what age, what gender, what citizenship.”

- Annual shareholder meeting right after the board meeting:

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- Ghosn: “I have not come to japan for Nissan. I will do everything in my power to bring Nissan back to profitability at the earliest date possible and revive it as a highly attractive company.”

He introduced changes:
- A quasi-stock option
- new language policy
- All top-level meetings be conducted in english
- All reports in english

After realizing that key words were understood differently between people he:
- Established a dictionary or essential terms

Ghosn told the management team:

“WE HAVE TO BE IMPECCABLE IN ENSURING THAT OUR WORDS MATCH OUR ACTIONS.” in other words:
COMPLETE TRANSPARENCY, OTHERWISE, DISASTER.

Mobilizing middle managers

- 9 cross-functional teams (CFTs)
Purpose:
Generate ideas and recommendations for change.
Consisted of:
Senior managers & middle managers from different divisions.
Why?
The inclusion of the middle managers was to ensure that the Nissan Revival Plan (NRP) would be the work of the whole company, not just the top-management.

Ghosn was amazed:
Due to lack of communication across functions, borders & hierarchical lines.

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CFTs Focus:

- Purchasing
- Research and development
- Engineering

CFT members requirements:

- Commitment to Nissan
- Talent

Ghosn took a close interest in selecting the pilots of the CFTs.

CFT Manager requirements:

- Middle or upper-middle managers
- Frontline experience
- Strong personal credibility

CFT Group requirements:

- At least two executive managers
- Middle managers
- A 10 people limit (to counteract endless discussions)
- If domain to large, sub-group(s) were created for each domain (also max 10 people)

CFT Group Executive Managers requirements:

- Two executives from different functional areas (prevent single perspective)
- Role is to remove organizational barriers
- Facilitate the team’s work

The teams totaled to around 500 people.

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The teams had three guidelines:
1.

One goal: Make proposals in order to develop the business and reduce costs.

2.

One deadline: Three months for final official decision-making.

3.

One rule: No sacred cows, no taboos, no constraints.

Ghosn repeated:
“Only one issue is non-negotiable: The return to profit.”

RESULTS OF THIS:

- The team felt energized, they were personally fixing their own company!
- They felt as if they had nothing to loose, this was their chance.

Ghosn set example:
He rejected many proposals outright! He said that they weren’t aggressive enough!

Ghosn motivated the employees:
He told them: Nissan lost its position as the countries second largest to Honda!

Further motivation:

“If the Nissan Revival Plan succeeds, it will have many fathers. If it fails, it will have only one.”

Further motivation:
He strolled up and down assembly lines, asking workers regardless of rank questions.

He encourages the use of Emails.

PSYCHOLOGICAL DAMAGE:

- He realized that after so many years of underperformance he said:
“The biggest challenge when a company has been depressed for such a long time is self-confidence.”

- I had to help people believe that they were capable

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A week before the announcement, he met with and talked to the union leaders and solicited support.
- He guaranteed them a job if willing to relocate.
- He guaranteed compensation for those who wouldn’t

Announcing the plan
October 18, 1999. Ghosn announced the plan.

- He started: “Nissan is in bad shape… losing shares continuously since 1991”
The diagnosis:
1.

Lack of clear profit orientation

2.

Insufficient focus on customers and too much focus on chasing competitors

3.

Lack of cross-functional, cross-border, intra-hierarchical lines, work in the company.

4.

Lack of a sense of urgency.

5.

No shared vision or common long-term plan.

The proposed treatment:

- Cut purchasing costs by 20% in two years (centralized and globalized)
- Halving the number of suppliers (increased business with remaining suppliers)
- Reduce capacity by 30%
- Closing 3 assembly plants and two engine-transmission plants:
- He said by doing this it will allow the remaining ones to become industry leaders.
- Rationalize the number of platforms from 24 to 15 by 2002 and to 12 by 2004.
- Optimize and develop R&D capability and capacity. Investment from 3.7% to 5%.
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- HR: A performance oriented compensation, bonuses and stock option.
- 14% of employees would be cut. From 148,000 to 127,000.
- Through part-time, spin-off & early-retirement programs.

Establishing the plan:

- 5% planning -> 95% execution.
- Return to profit FY 2000.
- Operating profit of 4.5% for FY 2002.
- Cut debt in half to $6.3 billion by FY 2002.

He declared that the top-management would be held accountable for delivering the committed performance - all of it.

An outsider mentioned: He painted a picture so bleak, that the unions had to accept the terms.

Ghosn realized that until he had results, his credibility was in straight talk.
“Credibility has two legs: the first leg of credibility is performance, but we have nothing to show at the start.
The second leg is transparency. So we have to be extremely transparent.”

Focusing on Action
Two weeks after the announcement nissan stock fell 5%

Ghosn statement:
“If Nissan failed to post a profit for the year ending March 2001, he will quit along with the executive committee.

- He approved a $930 Million plant (1/3 of Nissans sales) in Mississippi (to serve the US market). The plant was scheduled to start mid-2003.

- This was a statement, implying that people need to know what the prize is, what they are aiming for.

- Ghosn praised loyalty and enthusiasm in Nissan, whilst simultaneously pressed the employees for topresults.

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- He encouraged open debate of major issues, Japanese managers were initially not used to it, but eventually found the new approach more productive.

- 5% planning, 95% on implementation.
- Plant closures, close coordinations, customized solutions, detailed cooperation.

2000 Making headway
- Bonus structures should be explicitly linked to operating profit of the company or the subsidiary with up to 35% to be performance related.

- If top-managers did not demonstrate cost-cuts, no-one in purchasing, administration or engineering would receive a pay-raise.

- All promotions should be based on performance, rather than seniority.
- 2000 stock option plan to managers worldwide.
- The notion of target (i.e. stretched goals) and commitment.
- Commitment: Annual set of objectives to which compensation and promotion is tied.
- Actual performance monitored closely
- commitment and target comprised two or three specific, mostly quantitative goals.
- He let managers know that they would be held accountable.
- He was direct in his dealings with employees.
- He shook everyones hand enthusiastically, regardless of rank.
- Ghosn is simple and straightforward, he reacts in an open and straightforward way.

The more significant decision was to eliminate the divisional presidencies in Europe and North America.
Ghosn said: “The reorganization was one of the few changes I made unilaterally”.

- He established a global marketing team in order to create a clear picture of how Nissans models were faring against the competition.

Mid-May 2000, Nissan announced a plan to revamp the production line with 22 models over the next three years. The following october Ghosn announced:

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NISSANS BEST YEAR IN A DECADE:
- A net profit of $1.5 billion
- Workforce cut by 9000
- Purchasing cost cut by 10%
- The NRP is going faster than previously forecast.

Creativity and Innovation
- Despite low cash, Ghosn approved the upscale remodeling of Nissan’s technical center in Tokyo.
- The design team was more concerned with consensus rather than individuality.
- Designers communicate daily cross-countries.

The partnership between Renault and Nissan made a lot of sense given the risks involved and the lack of consensus over what type of fuel cell was most promising. A large number of the 1,000 new engineers that nissan was set to hire would be channeled toward the five-year fuel-cell program.

In May 2001, Ghosn Declared: “NISSAN IS BACK”.

- Sales were up 1.9% to nearly $50 billion.
- Debt had shrunk to $7.7 billion
- Purchasing cost had been cut by 11%
- Capacity utilization up to 74%
- Margins had tripled from 1.4% to 4.75%
A YEAR AHEAD OF SCHEDULE!

- September 2001, procurement costs were down 18%

“One thing that Ghosn brought to the party was a clear focus on our priorities. He has not wavered from day one.”

“Ghosn knew how to make people feel that they faced was not insurmountable. He got people involved by convincing them that facing challenge would develop them personally, even if they didn’t agree initially with him. In the end, the objective appeared so clear and transparent it was difficult to argue against.”

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GHOSN:
“No matter how promising your resources, you will never be able to turn them into gold unless you get the corporate culture right. A good corporate culture taps into the productive aspects of a country’s culture, and in Nissans case we have been able to exploit the uniquely Japanese combination of keen competitiveness and sense of community… For a turnaround process of this kind to work, people have to believe both that they can speak the truth and that they can trust what they hear from others. Building trust, however, is a long-term project; those in charge have to demonstrate that they do what they say they’ll do, and that takes time. But you have to start somewhere. Right from the beginning, I made it clear that every number had to be thoroughly chekced. I did not accept any report that was less than totally clear and verifiable, and I expected people to personally commit to every observation or claim they made. I set the example myself: when I announced the revival plan, I also declared that I would resign if we failed to accomplish any of the commitments we set for ourselves.”

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